When the pandemic created snarls in supply chains, some impacts were immediate and very visible. But others took time to manifest, only to introduce new problems just as the industry was seemingly finding solutions to the earlier ones. One example now facing the industry is a shortage of chassis, which is threatening to introduce a new round of cost increases and inefficiencies. The pandemic slowed down the process of manufacturing new chassis.
This could not have happened at a worse time. In the United States, each year, we now deliver approximately 35 million domestic and international containers from some sort of hub to a customer. Yet we now have only 700,000 chassis available to facilitate those deliveries.
How is the industry handling the shortages?
Many of these should have been scrapped years ago, and the industry has been engaged in that process for the past 5 to 8 years. But you can’t scrap chassis if you don’t get new ones, and manufacturers are putting buyers on waiting lists that can require a wait of 18 months.
In lieu of a purchase, many carriers are looking to rent chassis, but supply is limited. Worsening the problem is that other supply chain pressures at ports have turned too many chassis into long-term storage units, which is keeping them out of circulation for transport.
A supply chain without enough chassis is a nightmare scenario. Imagine the inefficiency of loading each container individually from an ocean carrier onto a flatbed trailer. Imagine the delays at ports – and the resulting demurrage fees – as carriers are forced to plod through such a process. It seems impossible that we could face such a situation, but the risk of it grows the longer the industry lacks the number of chassis the current volume demands.
The situation is presenting some real coordination challenges for 3PLs, carriers and shippers. Whether we’re talking about one-day or half-day moves within 100 miles of a hub, or longer moves of 300-to-500 miles from a hub, it is always difficult to coordinate getting the right number of chassis in the right location for the number of containers coming back.
Even the major carriers who own their chassis have to rely on available chassis to handle overflow during heavy-volume periods. Smaller carriers might have a pool of 10 or 20 chassis, but they will also do a lot of chassis leasing. Right now one firm, an investment group known as Apollo, owns the majority of chassis that are available for lease in the U.S.
Leasing is only a band-aid to a much deeper wound
Leasing can solve a problem for short term, but a carrier is better off having its own chassis. It’s critical for them to control the way their containers are being turned so chassis aren’t being turned into storage units. New chassis usually cost between $15,000 and $25,000, which is not a small investment but pales in comparison to the cost of not having them.
But when you have to wait 18 months to get the chassis you need, you do what you have to do. That is what far too many smaller carriers are facing right now. And small carriers represent the bulk of the nation’s capacity right now, so they need solutions. Many of them who work with us are turning to what we call a power-only move, in which we get the driver and the tractor, then coordinate the equipment they need via rental or short-term lease.
We spend considerable time making sure chassis are available, either from one of our pools or from one of the leasing companies we work with. This problem is about to hit critical mass as peak season approaches. Most economists believe volume in August, September and October will be higher than in recent years. If it comes back as hard as the predictions, it’s going to suck up a lot of capacity and worsen the problems caused by the shortage.
We’re already seeing the effects at the ports of LA and Long Beach, where growing volumes of cargo are being stored directly on the ground. Carriers hauling containers from the port of Chicago say they’re scrambling while providers search for mechanics to fix their chassis.
The only real solutions for the industry, until more chassis become available, are to tighten up protocols, use innovative technology to help maximize container visibility and take advantage of experts such as 3PLs to eliminate as many inefficiencies as possible in the process.
Shippers and carriers can’t will more chassis into existence, but they can protect themselves from the most serious consequences of the shortage by improving their own operational efficiencies. When the shortage is resolved, those improved efficiencies can still work for you.
Karl Fillhouer is the Vice President of Sales and Operations at Circle Logistics. Circle Logistics is a privately held third-party logistics company committed to delivering on three core promises to their customers: No Fail Service, Personalized Communication, and Innovative Solutions.
